GoPro (GPRO -2.16%) is the world leader in action camera technology. It was listed on the public markets in 2014 at $24.00 per share, quickly climbed to $93.85, then spent the next six years steadily declining before bottoming out at $2.29 per share in 2020.

But the company is on a mission to transform its business model by tapping into new sales channels and unlocking new revenue streams. These moves have successfully led to a modest rally in GoPro shares, and here’s why there could be significant long-term rewards for investors who buy it now and hold it.

Go direct to consumer

GoPro is a hardware company at its core – it’s by far the most innovative action camera maker in the industry. Its latest version HERO10 Black can record 5.3K ultra-high definition videos with advanced stabilization technology. And at $499, it’s 85% cheaper than what the company says is the next best product, which sells for $3,500.

The problem is that it is very difficult to generate long-term growth by selling only hardware when the fate of the company depends so much on one type of product. This is especially true when major retailers are GoPro’s primary sales channel. This places a barrier between the consumer and the brand, making it difficult to build relationships and upsell accessories. Not to mention that GoPro has to give up some of the profits to the retailer.

But the company has created a more lucrative direct-to-consumer channel through its website, and it’s growing rapidly. In the first quarter of 2021, 33% of sales came from GoPro.com, but this figure has increased to 41% in the most recent period. The progress is already impacting GoPro’s finances, pushing its gross profit margin to 41.8% in the quarter from 38.6% a year ago.

The result was a notable swing towards profitability, with the company posting a net profit of $5.7 million after losing more than $10 million in the year-ago quarter. But things could still improve in the future.

New High Margin Revenue Streams

GoPro has a unique opportunity in software development. Content-editing tools offer great synergies for a camera company that leads the pack in video quality, and GoPro is set to launch a new subscription-based desktop software app in 2023. will rely on its existing GoPro Player and ReelSteady desktop. apps to include a more comprehensive suite of editing tools.

It complements the company’s Quik smartphone app, designed to replace the native camera app on iPhone and Android devices. Quik targets potential customers who do not own a GoPro camera in an effort to expand the company’s addressable market.

But GoPro’s biggest source of recurring revenue, so far, comes from the GoPro.com subscription, which gives customers exclusive product discounts, cloud storage for videos, and the ability to live stream. from their GoPro device. It continued its meteoric growth in the first quarter with subscriber numbers jumping 85% year-over-year to 1.74 million, sending subscription revenue skyrocketing.

Perhaps an even more positive aspect of this growth story is the gross margin attached to GoPro’s subscription revenue, which can be as high as 80%. Subscriptions accounted for less than 10% of total revenue last quarter, but the rate of growth suggests it’s poised to have a big impact on the company’s finances as a whole.

When that happens, GoPro’s mixed gross profit margin could shoot well beyond the current 41.8%.

Why GoPro is a Buy Now

GoPro has clearly made substantial progress in improving its business, and this is recognized by some Wall Street firms, which have recently taken a bullish view of the business after being bearish for years.

The average price target for GoPro stock on Wall Street is $11.80, which represents an upside potential of 85% from its current level. But an investment bank, JPMorgan Chaseis much more bullish, predicting the stock could rise more than 100% to $15 per share.

Thanks to its newfound profitability, GoPro is highly de-risked as an investment. The company made money in 2021 and is expected to generate $0.93 in earnings per share in 2022, with more growth expected in 2023.

With the stock down 93% from its all-time high, now may be the right time to get involved, given the transformative nature of GoPro’s subscription business and new software on the horizon. .